Falling Interest Rates May Improve Your Chance to Sell Your Agency. Are You Ready?
M&A activity for agencies has begun to ramp up. We expect this to continue.
Despite ongoing economic and political uncertainty, the M&A market for marketing and communications agencies remained strong during 2023. This was particularly true for public affairs firms. We expect this to continue in 2024 due to three key factors.
First, at some point interest rates will decrease. When that occurs, we expect to see even more private equity activity in the agency world. Cuts in interest rates make money cheaper for PE firms to acquire agencies. There have also been a significant number of PE deals even in an environment of higher interest rates.
Second, we have begun to see the reemergence of the traditional holding companies in M&A negotiations. They’re involved in more transactions today than in the previous 8-10 years.
Third, large independent firms with and without financial backers have also been active. We expect that to increase even further as interest rates decline.
The combination of greater private equity activity, the reemergence of holding companies and the continued robust activity of independents bodes well for those agency owners contemplating a future sale.
If you’re even thinking about selling, are both you and your agency in fact fully prepared to do it?
For agency owners seeking to sell their agencies, 2024 may be a very good time to sell. However, as always, you have to manage the sales process carefully and correctly.
Based on Prosper Group’s experience and insights from more than 20 M&A-related deals in the past two years (both internal and external), we’d like to share a few of our thoughts.
Getting prepared to sell. These two first steps are a must.
Here are two very important steps to take now if you’re considering selling your firm.
First, start by getting an M&A expert valuation of your agency so that you understand the likely valuation range for your firm’s area of focus in today’s market. This valuation will a) help you with life financial planning, b) identify weaknesses in the firm that, if fixed, could dramatically increase its valuation and c) serve as a benchmark for developing long-term incentive plans for senior talent.
For example, Prosper Group’s valuation team develops a quantitative valuation range based on an agency’s historical performance. We also provide expert advice and specific recommendations for addressing weaknesses which will decrease the perceptions of buyer risk and increase agency selling price.
Second, work proactively to ensure that the agency is not overly reliant on the owner for success. Locking in senior and mid-level talent will help to accomplish this… and increase the value of the agency in the eyes of potential buyers. The number one risk assessment for most buyers is whether the agency can be a going concern without the owner. The perception of risk decreases dramatically if the agency has a deep senior team.
For our in-depth thinking on getting your agency prepared for sale and maximizing its value, click here for Part 1 and click here for Part 2.
Finally, you must also understand that all buyers are NOT the same. Their respective acquisition goals and pricing formulas can vary greatly from buyer to buyer.
To learn more about the different kinds of buyers, click here.
We’re here to help you prosper.
Prosper Group exists to help the owners of independent marketing and communications agencies achieve their ambitions and maximize the value of their life's work.
Our team of former agency leaders and owners focus their deep experience on implementing proven proprietary methodologies across our three practices of agency performance, owner exit planning and M&A transactions in order to drive owner and agency success.
To learn more about us, please visit our Services page.
